Security analysis and investment management

Assignment
On
FUNDAMENTAL AND TECHNICAL ANALYSIS
OF
IDEA

Amit Anil Thomas

00915103916

Mba sec a
Idea Cellular is an Indian mobile network operator based in Mumbai, Maharashtra. Idea is a pan-
India integrated GSM operator offering 2G, 3G and 4G mobile services. Wikipedia
Stock price: IDEA (NSE) 96.40 -2.40 (-2.43%)
9 Nov, 12:52 PM IST - Disclaimer
Customer service: 12345
Headquarters: Mumbai
CEO: Himanshu Kapania (1 Apr 2011–)
Parent organizations: Aditya Birla Group, Axiata Group
Founders: Kumar Mangalam Birla, Ghanshyam Das Birla
Did you know: Idea Cellular is the fourth-largest internet service provider in India by total
subscribers (38,133,324). wikipedia.org

FUNDAMENTAL ANALYSIS

COMPANY ANALYSIS

 From the past 2 years, telecommunication sector of india has expanded very rapidly.
 Introduction of jio, has really expanded the portfolio of number of consumers in the
country.
 Consumption of data has gradually been taken off due to hyper competitive market.
India GDP growth rate

India inflation rate

Interpretation

 Because of Demonetization , GST roll out india’s gdp has really taken a bad hit.
 Even research analyst have forecasted good indication for india’s growth.
 Telecom sector was already been hyper competitive and now due to price wars mergers
and acqusistion are taking place at a rapid pace.

IMPACT OF BUDGET ON TELECOM INDUSTRY

The Telecom industry is key industry which earns income to the exchequer. The industry is
piercing in the rural area. As on 31.01.2016, 1017.97 million wireless phones and 25.32 million
wire lines, totaling 1043.29 million connections are working in India. The share of urban
subscribers is 57.27% and the share of rural subscribers is 42.73%. This is not the limit and it
is expected to grow still further. The number of broadband subscribers as on 31.01.2016 is
140.10 million. The value of mobile phone production in India is expected to cross ₹ 400 billion
in 2016-17. It is estimated that over 30000 new jobs have already been generated in this
industry in the past seven to eight months under the ‘Make in India’ initiative. The Government
expects revenue of 989.95 billion from the spectrum auction, licence fees and one time
spectrum charges in 2016-17.

Therefore it is quite natural for the Telecom industry to expect more from the budget. In this
article it is discussed whether the Finance Minister fulfilled the desire of the Telecom Industry.

In his budget, the Hon’ble Finance Minister proposed to declare the assignment by the
Government of the right to use radio frequency spectrum and its subsequent transfers as a
service and not a sale of intangible goods, on which service tax can be levied. But on the other
hand the telecom companies had termed the budget proposal to levy service tax on spectrum
allocation as punitive and unfair. The telecom companies wants to withdrawn the said levy of
service tax since the tax burden will be 77,000 crore on the reserve price of ₹ 5.36 lakh crore,
by which the tariff will increase. This will not only affect the increase of customers but also
have an impact on the Digital India initiative.

The plan outlay for the Department of Telecom has been set at ₹ 58.65 billion. This is
somewhat a marginal increase over the previous years. The present budgetary allocation to
Department of Telecom includes-

 Rs.0.17 billion towards regulatory bodies – TRAI and TDSAT;

 Rs.27.55 billion for USO Fund;
 Rs.3.03 billion for DoT projects;
 Rs.27.1 billion for Network for Spectrum Project.

BSNL will receive 22 billion as a refund for the 4G and CDMA spectrum it has
surrendered. MTNL will receive a total support of 4.28 billion, including a refund for the 5MHz of
spectrum that it surrendered in the Delhi and Mumbai circles and refund of MAT and payment of
interest on bonds.

The countervailing duty and special additional duty were waived on charges, adapters,
batteries, wired headsets and speakers for mobile phones. The import duties on import used in
the making of such parts and components have also been removing. This waive has been
received better in some corners indicating that the changes will help to build a robust
component ecosystem in the country which is very important for making it a manufacturing
hub. While the other corner it has been indicated that domestic manufacturing will attract only
2% excise duty while imports will face 29.441% duty.

All the Government services have been made liable to service tax to be paid by recipient of
service provider under Reverse charge mechanism with effect from 01.04.2016. The
Government also proposed that the CENVAT credit of the tax imposed on such assignment be
deferred over the duration of the license period.

The Finance Ministry has also proposed a new dispute resolution scheme in cases of
retrospective taxation, which allows tax arrears to be paid in lieu of interest. The Industry finds
that this scheme will be a positive and should help reduce the litigation facing the
industry. Deferment of applicability of POEM based residence test and other tax rationalization
measures relating to processing of tax refunds, grant of stay of demand, etc. may have a
positive impact on telecom industry.

The Finance Bill, 2016 proposed to amortize spectrum fees rather than allow tax
depreciation. The industry is of the view that this could result in ambiguity and litigation risks,
thereby leading to a negative impact on the cash flow of operators. In the before period the
industry looked at spectrum as an intangible liable for tax depreciation. Rationalization of
withholding tax rate on commission from 10% to 5% should be seen as welcome step by
telecom operators, although the expectation was that it would be reduced to 2%.

The Government is planning to increase its efforts under the Digital India initiative. The
Government wants to launch a new Digital Library Mission Scheme for rural India within next
three years. It also proposes to create a digital depository for school leaving certificates, school
and college mark sheets which would be a platform for storing the documents safety and enable
anybody to retrieve the same easily. The Indian telecom players will play an important role in
this area.

The budget proposals will result the tariff upwards by the operators which may boost
revenue. The spectrum transaction will play a significant role in the strategies of small and large
operators in terms of maintaining or improving their market standing. Encouraging the domestic
manufacturing of telecom equipment and mobile handsets will assist the industry’s transition to
a data-led growth model.
 India is currently the 2nd largest telecommunication market and has the 3rd highest number of
internet users in the world
 India’s telephone subscriber base expanded at a CAGR of 19.16 per cent, reaching 1188.5
million during FY07–1
 Tele-density (defined as the number of telephone connections for every 100 individuals) in India,
increased from 17.9 in FY07 to 92.59

Telecom Sector Analysis Report

 India's teledensity has improved from under 4% in March 2001 to around 83.36% by the
end of March 2016. The mobile subscriber base (GSM and CDMA combined) has grown
from under 2 m at the end of FY 99-00 to 1033.63 m at the end of March 2016. Tariff
reduction and decline in handset costs has helped the segment to gain in scale. The
cellular segment is the dominant segment in the industry by making itself available in the
rural areas where the teledensity is far lower (51.37%) than that in urban India
(154.01%).
 The fixed line segment continues to decline in terms of the subscriber base. It has
declined to 25.23 m subscribers in March 2016 from 26.59 m subscribers in March 2015.
 As far as wireless broadband connections (>= 512 kbps) are concerned, India's internet
users have risen considerably from 50 million in FY08, to almost 150 m in FY16 with
close to 90% users accessing internet via mobiles. This makes India the world’s second-
 largest internet market after China. Consumption of data services continues to grow at an
exponential pace.

FUNDAMENTAL ANALYSIS

COMPANY ANALYSIS

p/e ratio = 91.45 p/bv = 2.95

RETURNS : 100/PE ratio price/book : 100/pbv

100/91.45 = 1.09 100/2.95 = 33.89

 Returns are not good as; it is just giving 1.09% of returns

 In terms of safety of every 100 rupees invested in airtel 33.89 rupees are safe.
  From the past 2 years, telecommunication sector of india has expanded very rapidly.
 Introduction of jio, has really expanded the portfolio of number of consumers in the
country.
 Consumption of data has gradually been taken off due to hyper competitive market.

CONCLUSION

In the space of 1 year, Jio has single handedly changed the entire scenario of market share of
entire industry. Per day consumption of data, high use of daily internet packs, which were used
for entire month is now been used for a single day. Such implications is highly visible and will
be more in numbers in coming times. For airtel it has been the most subscribed telecom but its
leads after the inception of jio had substantially diminished.